Public Liability for Fossil Fuel Infrastructure

Eventually, society will reduce its use of fossil fuels. While the legacy of environmental impacts from fossil fuel production is well known, another issue on the horizon is what to do with the vast complex of drilling platforms, pipelines, storage tanks, marine terminals, and other elements of oil and gas infrastructure. Long after production ceases, this infrastructure could affect water quality and wildlife habitat as well as public safety and recreation.

Once operations cease, state and federal regulations require companies to dismantle and remove infrastructure and rehabilitate any affected ecosystems (DR&R). Companies post bonds to ensure that these obligations are met. But bond values, and whether they are sufficient to cover actual DR&R costs, are unclear. If companies default on their obligations, and the infrastructure cannot be used for other beneficial purposes, states and the federal government could be left responsible for clean-up costs. Adequate bonding requirements for new fossil fuel infrastructure are thus an important step in internalizing these costs.

In a new report, CSE teamed up with Alaska’s Cook Inletkeeper to help make the case for adequate bonding requirements for fossil fuel infrastructure in Cook Inlet. Since some oil wells, platforms, pipelines, and onshore processing facilities are nearly 50 years old, discussions over DR&R have begun. CSE estimates that total costs for DR&R at 16 offshore platforms and 160 miles of oil pipelines in Cook Inlet could range between $402 million and $1.11 billion. However, DR&R funding available to the State through bonds may represent no more than 25-50% of these anticipated costs. Adding gas pipelines and other infrastructure with more ambiguous DR&R requirements would greatly increase this cost estimate and the associated funding gap.

Our report demonstrates that bonding and related surety obligations for oil and gas infrastructure need enhanced clarity and predictability to best serve the interests of industry, government and Alaskans alike. Bonding requirements should not be based on a schedule of nominal fees, but the actual expected costs of DR&R for each facility, pipeline, platform, or other infrastructure element.

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Our report demonstrates that bonding and related surety obligations for oil and gas infrastructure need enhanced clarity and predictability to best serve the interests of industry, government and Alaskans alike. Bonding requirements should not be based on a schedule